Entry & exit in response to profits/losses
Can easily enter or leave this market
Long run equilibrium
MR = MC and price and minimum average total cost are equal. Economic profit here is zero; the industry is "at rest" because there is no tendency for firms to enter or to leave. The existing firms are earning normal profits, which means that their accounti
MR = MC =ATC = P
Equal in one place, same Price Value
Profit max
Marginal Revenue = Marginal Cost (MR=MC)
Productive Efficiency Equation
Price = Average Total Cost (P=ATC) or Marginal Cost =Average Total Cost (MC=ATC)
Allocative Efficiency Equation
Price = Marginal Cost(P=MC)
Long-Run Supply Curve
A supply curve for which price, but not real output changes when the demand curves shifts; a vertical supply curve that implies fully flexible prices
Constant-Cost Industry
Entry and exit of firms have no effect on the prices firms in the industry must pay for resources and thus no effect on production costs. Industry expansion or contraction will not affect resource prices and therefore production costs.
Increasing-Cost Industry
Expansion through the entry of new firms raises the prices firms in the industry must pay for resources and therefore increases their production costs. Firms' ATC curves shift upward as the industry expands and downward as the industry contracts.
Decreasing-Cost Industry
Expansion through the entry of firms lowers the prices that firms in the industry must pay for resources and therefore decreases their production costs. The industries that show decreasing costs when output expands also show increasing costs if output con
Productive Efficiency
The Production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs.
Allocative Efficiency
The apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); The output of each product at which its marginal cost and price or marginal benefit are equal, and at which the sum of c